With real household incomes rising the most in years and the savings rate rather high, the rebound in consumer spending will continue in 2025. And with the yen set to remain weak for longer and this year's spring wage negotiations probably delivering another large pay hike, underlying inflation will remain above the Bank of Japan's 2% target for most of 2025. Accordingly, we expect the Bank of Japan to lift rates to an above-consensus 1.25% by 2026.
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